Ohio Supreme Court blocks transfer of disbarred attorney’s assets

The Ohio Supreme Court has ordered a Hamilton County court not to proceed with a case involving the assets of disbarred attorney Stanley M. Chesley, calling the action a “product of fraud.”

The Supreme Court voted 4-3 to issue a writ of prohibition to block Hamilton County Probate Judge Ralph Winkler from considering a request to transfer the assets of Chesley’s former law firm. The writ was sought by 19 creditors, who were former clients of Chesley and are owed millions of dollars that they have not received from a class action lawsuit. They alleged Chesley and other attorneys have stolen millions of dollars from the settlement.

The per curiam majority opinion explained that a writ of prohibition is typically granted to prevent a lower court from acting when the court lacks jurisdiction to consider a matter. In this case, the Supreme Court concluded Judge Winkler does have jurisdiction, and Chesley’s clients would have the right to appeal any decision Judge Winkler would make if they objected to it. However, the Court was granting “extraordinary relief” because of the “long and egregious litigation history” that started in 2004 when the former clients first filed a lawsuit to receive their settlement shares from Chesley.

In a dissenting opinion, Justice R. Patrick DeWine wrote that although the Court was “understandably frustrated with Stanley Chesley’s actions in evading payment,” it should not apply its rules differently to the Hamilton County court. He noted a federal court has already issued an order blocking any attempts by Chesley and his alleged confederates to transfer funds.

Chesley Seeks to Move Money

The probate court action is an assignment for the benefit of creditors (ABC).The Supreme Court called the move the “latest chapter in the ongoing campaign” by Chesley to shelter assets from those who have won judgments against him.

Connie McGirr and others were represented by Chesley in a class action lawsuit regarding the diet drug fen-phen, which resulted in a settlement. In 2004, McGirr and 18 others filed a lawsuit in Kentucky against Chesley and three other attorneys alleging they stole millions of dollars from the settlement. In 2014, a Kentucky trial court ruled Chesley owed the clients $42 million, and the ruling was affirmed by a Kentucky appeals court.

For his conduct in the case, the Kentucky Supreme Court permanently disbarred Chesley in 2013, and Ohio in turn disbarred Chesley. Before he was disbarred, he was the president and sole shareholder of the law firm Waite, Schneider, Bayless & Chesley (WSBC). A month after his disbarment, Chesley drafted a windup agreement to shut the law firm and transferred the shares of WSBC to Thomas Rehme to hold for the purpose of conducting the winding up operations.

In 2015, a Kentucky judge ordered Chesley to transfer his interest in the WSBC shares from the trust he set up with Rehme to pay $42 million to the former clients. Chesley did not transfer the shares.

In 2016, Rehme incorporated the trust into a for-profit corporation. Two days later, he transferred all the WBSC shares into the new corporation. The corporation then attempted to assign all the WSBC shares to Eric Goering, who was named the representative of WSBC assigned to pay the bills associated with closing the shuttered law firm. Rehme filed the ABC action in probate court to move the money from the trust to Goering.

In April 2017, the former clients requested that Judge Winkler dismiss the case, which he denied. The clients then asked the Ohio Supreme Court for the writ of prohibition to prevent Judge Winkler from proceeding with the case. Judge Winkler and Goering responded asking the Supreme Court to refuse the writ and allow the case to proceed.

Probate Court Has Jurisdiction

The Court explained that to grant a writ of prohibition, a court must be about to exercise its power, the court must lack the authority to exercise the power, and the requester of the writ must have no other adequate remedy if the court acts.

The opinion noted that Judge Winkler was about to act by considering the ABC, and the Court agreed that the judge had the authority to take action. It stated R.C. Chapter 1313 gives the probate court jurisdiction over voluntary assignments of benefits of creditors, which is what Rehme was seeking. And the Court found that the former clients do have the remedy of appealing any ruling a probate judge makes in an ABC action.

The creditors argued that Judge Winkler does not have the authority to act because a Kentucky judge has already declared the wind-up agreement and the movement of WSBC funds from the law firm to Rehme “a sham.” They also argued that allowing Rehme to convert the shares of WSBC into money to give to Goering would violate the full faith and credit clause of the U.S. Constitution because a Kentucky court already ordered the WSBC money be used to pay the former clients.

The former clients have also filed a federal lawsuit to collect from Chesley and argued the ABC action was an attempt to “end run” the federal court. Because the federal court has accepted the case, the state court cannot take action, they claimed.

The Ohio Supreme Court rejected the arguments, noting that the clients have the right to appeal any order allowing the transfer. The Court also explained the “jurisdictional priority rule” applies when two different state courts are asked to settle a matter, and the court that is first to claim jurisdiction to hear the case keeps the case. The rule does not apply to federal court, and the actions of the federal court do not prevent the probate court from considering the ABC.

Writ Issued to Prevent Abuse

While the probate court has legal authority to consider the case, the Supreme Court wrote it will issue a writ of prohibition to prevent abuse of the legal process, and found the conduct of Chesley and WSBC warrants action.

The Court stated that Goering and WSBC admit the existence of the Kentucky judge’s order and Chesley’s noncompliance with it. And they admit they are aware of but disagree with the substance of the judge’s conclusion that Chesley is attempting to transfer his wealth, including $59 million in personal accounts, into WSBC to prevent his former clients from collecting it.

“The record evidence demonstrates a pattern of misuse of the judicial process in Ohio by Chesley and WSBC to obstruct collection efforts and conceal Chesley’s ongoing control of WSBC,” the Court wrote.

The Court wrote the ABC action, which was claimed to be an attempt to pay off the law firm’s debt, was the product of fraud. The opinion stated that U.S. District Court Judge Robert Cleland imposed a temporary restraining order barring Chesley, Rehme, WSBC, and their agents from transferring or distributing WSBC funds. The opinion quoted Judge Cleland stating the transfers from Rehme to Goering “appears to be with the intent to frustrate the judgment creditors.”

The Supreme Court also noted last year it granted a writ of prohibition against Hamilton County Common Pleas Court Judge Robert Ruehlman from presiding over another Chesley action to prevent the collection of the judgment and WSBC was a party in that case.

“And the record in that case is replete with examples of abusive litigation tactics,” the opinion stated.

Chief Justice Maureen O’Connor and Justices Terrence O’Donnell and Patrick F. Fischer joined the majority opinion. Justice William M. O’Neill did not participate in the case, and Tenth District Court of Appeals Judge William A. Klatt, sitting for Justice O’Neill, joined the majority opinion.

Dissent Maintains Writ Not Proper

In his dissent, Justice DeWine explained that the Court was disregarding its longstanding rules to issue the writ. According to Justice DeWine, it was fundamental that the Court will not issue a writ of prohibition when the party seeking it has an adequate remedy. The only exception to the rule is when a court “patently and unambiguously lacks jurisdiction,” he wrote, and in this case the Court ruled the exception does not apply.

Moreover, Justice DeWine stated, “It is far from clear that the radical action taken by this court does anything to help these creditors.” He noted the federal court has found the former clients are likely to succeed in their federal case against Chesley and the others, and Judge Cleland issued an injunction to prevent the movement of WSBC funds.

“Quite simply, this court’s action accomplishes little,” he wrote. “At the end of the day, what we have here is a court, frustrated by a litigant who won’t play by the rules, choosing to respond by ignoring its own rules.”